Farm diversification and regional investments: efficient instruments for the CAP rural development targets in rural regions of Finland?

This article investigates the distributional effects of rural policies when transferring the CAP direct payments to farm diversification and to the increased demand for regional investments by applying ruralurban social accounting matrices and computable general equilibrium model in two Finnish regions. Transferring subsidies to farm diversification did not accelerate regional growth when agricultural and food industries comprised the core of the economy. In contrast, if the relative importance of agriculture is minor, diversification increased regional income. The growing investments increased both regional GDP and employment. Positive effects, however, tend to accumulate in the urban centres. In addition, agricultural households suffered from welfare losses.